So how does this effect the future integration of SI with Datek? Trading with Datek directly through the SI browser is supposed to be the next big thing.....will it still happen? Will the sponsor link soon disappear? Will Josef's timely wav files suddenly reappear? Some questions to ponder - :-) brk
Taken from P.A.W.W. thread:
July 22, 1999
Vulcan Ventures Yanks Investment in Datek Online
By DAVID BARBOZA
ulcan Ventures, the venture capital fund financed by Paul Allen, co-founder of Microsoft, has pulled out of its part of a planned $300 million investment in Datek Online Holdings Corp., partly because of concerns about criminal and regulatory investigations into the online brokerage firm, according to people familiar with the investment.
A spokeswoman for Vulcan, Susan Pierson Brown, confirmed that the fund had withdrawn from the deal, announced two months ago, but she declined to elaborate. Just before the deal closed, Vulcan changed its mind, citing "due diligence" problems, according to people who worked on the deal.
Datek officials said that the two other venture capital firms, Groupe Arnault of Paris and TA Associates of Boston, that had been part of the original announcement signed contracts on Tuesday to complete their Datek investments, though they lowered the amount to $195 million from the expected $225 million to $250 million.
Vulcan, which is based in Bellevue, Wash., was expected to invest $50 million to $75 million in Datek, people familiar with the deal said. Vulcan also dropped plans for an additional $25 million investment, or 12 percent interest, in the Island ECN, a fast-growing electronic stock exchange operated by Datek.
Vulcan's withdrawal is a serious setback to Datek Online, which in the mid-1998 canceled an initial public offering of stock after the Manhattan district attorney said he was investigating whether Datek had taken part in a money-laundering operation and former traders at Datek said they were interviewed by the Securities and Exchange Commission about whether there were illegal trading practices at the firm.
Neither the SEC nor the Manhattan district attorney would comment Wednesday on whether those investigations were continuing, but law-enforcement officials said that Datek remained under investigation by at least two regulatory and law enforcement bodies.
Separately, Datek was named, but not charged, in a federal indictment in Florida last month that accused five non-Datek individuals, including two with ties to organized crime, with mail fraud, securities fraud and money laundering.
In April, Sheldon Maschler, a former owner and trader at Datek, was sued by the SEC, which accused him of improperly handling one account at the center of the Florida indictments. The beneficiary of that account was named Martin Clainey, according to the SEC. Prosecutors in Florida now say that Clainey was really Philip Gurian, who was banned for life from the securities industry and worked closely with Philip Abramo, a captain in the Decavalcante crime family. Datek officals said Wednesday that they had not been informed about the Florida case.
In May, Datek was sanctioned by the SEC and fined $50,000 for filing false financial reports and illegally dipping into customer money to pay its bills in spring 1998. The company was censured and the former chief financial officer was fined and suspended from Datek. The company says he has since been dropped from the payroll.
Datek has said that since around mid-1998 it has reorganized its operations and hired well-respected executives to lead its aggressive push into the booming online trading arena. The company is now the nation's fourth-largest online broker with more than $6 billion in customer assets and 253,000 online trading accounts. Last May, its credibility was enhanced when it won the backing of the three prominent venture capital firms, and in particular Allen, one of the best-known names in the world of high technology.
Datek was expecting to use the infusion of cash, about $300 million in all, to upgrade its technology at its fast-growing online brokerage firm and help prepare the Island ECN, which has petitioned the SEC to become a full-fledged stock exchange. To do so, it will have to come up with a regulatory scheme, among other costly endeavors.
The company remains upbeat about its prospects and said Wednesday that it was exploring other financing options. Earlier this year, Waterhouse Securities, another big online trading firm, made a $25 million investment in Datek. Robert Bethge, a spokesman for Datek, said Wednesday that TA Associates and Groupe Arnault had agreed to invest $195 million, trimmed back from a proposed investment of $225 million to $250 million. As for Vulcan Ventures, Bethge said, "The investment has closed, and Vulcan has opted, for whatever reason, not to participate."
Asked whether Vulcan expressed concern about Datek's past, including its long history of regulatory problems and investigations into the company, Bethge said, "I can't give you the specifics but that's the sense I've gotten. That's a fair statement."
Officials at TA Associates and Groupe Arnault each said Wednesday that they remained confident in Datek and their investment. They had no comment on the decision by Vulcan Ventures.
"We did our due diligence very seriously," said Jean-Bernard Tellio, head of the Internet unit at Group Arnault, a private holding company run by the French businessman Bernard Arnault. "The story of the company is very complicated, and there were some clouds, but we spent three months investigating this company and it looks terrific. We wouldn't risk our reputation if we weren't confident."
TA Associates, a venture capital fund, said it was also confident about its investment in Datek, which was arranged through Credit Suisse First Boston. "We were given all the facts by Datek and we did our own investigation," said Kenneth Schiciano, a principal at TA Associates.
Although Datek has won praise from Wall Street analysts as a powerful online brokerage firm, even company officials concede that Datek's history is troublesome. "There's no hiding from the fact that Datek Securities had a questionable past," Bethge said Wednesday, speaking of the company that is now Datek Online.
The company, which began in the 1970s as Datek Securities, gained fame in the 1980s and early 1990s as a day trading firm that specialized in NASDAQ stocks under its two chief traders, Maschler and Jeffrey Citron, now the chief executive of Datek Online.
But with that success came repeated regulatory scrutiny and fines against Datek traders, including Maschler and Citron for engaging in illegal trading practices. Datek officials said Maschler was no longer an owner of the company. |
